INNOCENT STATEMENT OR PUBLIC CORRECTION – THE RISKS OF PUBLIC DISCLOSURE

Securities legislation in Canada creates a statutory right of action for secondary market misrepresentation available to any person who acquires or disposes of a public issuer’s securities between two time-posts – the time that the document containing a misrepresentation was publicly released and the time that the misrepresentation was publicly corrected. In order to bring a class action, the purchaser must satisfy two requirements: first, that the public disclosure in question contains a misrepresentation, and second, that the misrepresentation was publicly corrected. While the first requirement has been widely considered in the case law, the second requirement has received little to no attention from the courts in Canada, until recently.

On 17 November 2015, the Ontario Superior Court of Justice released a decision in which it granted leave to the plaintiff to bring a class action lawsuit against BlackBerry. The lawsuit was launched in September 2013 shortly after BlackBerry issued a news release which stated “certain Blackberry 10 devices that were shipped in the first quarter will not be recognised until those devices are sold through to end customers”. At the time, BlackBerry had just released the BB10, its first touch screen phone. The product was not as successful as BlackBerry had anticipated. As a result, BlackBerry changed its accounting method to defer the recognition of revenue until the product is sold. The change resulted in a write-down of approximately $1bn. As a result, the company’s share price dropped by 15 percent.